Social Security Strategies
Monday, May 26, 2008SUSIE GHARIB: So the longer you live, the more it pays to put off collecting your first Social Security check. But even though women tend to live longer than men, a study by Boston College found that most women still begin taking Social Security at age 62. I talked about that and other Social Security issues with Kerry Hannon of "U.S. News & World Report" and Alicia Munnell, director of Boston College's center for retirement research. I began by asking Alicia Munnell if it makes any sense for women to collect Social Security as early as possible.
ALICIA MUNNELL, DIR., CENTER FOR RETIREMENT RESEARCH, BOSTON COLLEGE: No, it was a really surprising finding and actually we looked a little closer at that. And we found that single women actually claimed their benefits later than men, but married women claimed their benefits earlier than men. And married women can get a lot of benefits out of the system by claiming their own benefit initially and then a benefit based on their husband's earnings and ultimately a widow's benefit.
GHARIB: So, Alicia, are you saying that for a married couple, that it pays off for the woman to file for benefits at age 62 for example, if it allows her husband to delay collecting his?
MUNNELL: Well, I mean the husband's decision should be almost independent of the wife's. If he wants to continue working and can postpone claiming, he should go ahead and do that. If the wife wants to retire early and she then can claim some benefits based on her own earnings, then, point of fact, the couple will get the most out of the Social Security system if she claims on her own earnings and then later as a spouse and then latest as a widow.
GHARIB: Kerry, I understand that if someone decided to work into their 60s, and -- it doesn't pay to get the Social Security benefits at the same time. Why is that?
HANNON: Because the IRS, Susie, has an earnings limit. If you start taking your Social Security benefits before your official retirement age -- which for boomers is now 66; this year I believe it's $13,560 in earned income -- then your Social Security benefits up to 85 percent of your benefits can be taxed.
GHARIB: Alicia, as you know a lot of people are concerned that Social Security system is headed towards insolvency and that could be the reason why some retirees are trying to collect their benefits right away. But if there is going to be a cut at some point, doesn't it make sense to try to collect your benefits sooner rather than later?
MUNNELL: Susie, I've heard that argument, too, and I don't buy it at all. There's plenty of money to pay full benefits through 2040 and if anybody gets it together to get this solvency problem fixed, they're going to not cut benefits on anybody who's in their late 50s or early 60s as of today. So that is not a reasonable reason to claim your benefits early.
GHARIB: Kerry, do you agree with that? According to a lot of polls, many middle-aged Americans don't think that Social Security's going to be around when they retire. We hear politicians say just the opposite. What is the reality?
HANNON: I think the reality is more what we just heard. I think there's this fear factor out there that there is this dwindling account. But as noted, there was a surplus just last year of $200 billion in the Social Security fund and we're good through 2040, 2041 before anything is going to start being reduced and by then certainly there will be tweaks in the system. There are many proposals out there now, and it may end up being, perhaps, higher FICA taxes down the road. But for now I think that this baby boomer generation can rest assured that their benefit is not going to be reduced, from what experts have told me.
GHARIB: Alicia, as you know, most people cannot rely on pension funds anymore to pay for their retirement. And so how can -- what advice can you give on how people can maximize their Social Security benefits?
MUNNELL: Susie, you're absolutely right. Most people are going to have 401(k) plans and the balances in those 401(k) plans are really quite modest and so most people need to get as much Social Security as possible. And you get so much more if you wait. You get 33 percent more if you claim at 66 than if you claim at 62 and if you can wait until 70, you get 75 percent more. So if you have a normal life expectancy or somewhat longer, you should be trying your best to work as long as you can and postpone claiming as long as you can.
GHARIB: Munnell added that Social Security should be seen as the most reliable part of a person's retirement income. Because investment returns vary, she says it's much harder to guess how much money will be coming in for 401(k) or other accounts.
